Impairment of Investment in Subsidiaries, Associates & Joint Ventures under Ind AS 36

Ind AS 36, Impairment of Assets, applies to the impairment assessment of all assets except certain specified items such as inventories, deferred tax assets (Ind AS 12), employee benefit assets (Ind AS 19), financial assets within the scope of Ind AS 109, biological assets measured at fair value (Ind AS 41), and non-current assets held for sale (Ind AS 105).

However, the Standard does apply to financial assets that represent equity investments in:

• Subsidiaries (as defined in Ind AS 110)
• Associates (as defined in Ind AS 28)
• Joint Ventures (as defined in Ind AS 111)

For all other financial assets, impairment is governed by Ind AS 109.

Indicators Leading to Impairment of Investment

Ind AS 36 provides specific impairment indicators applicable to investments in subsidiaries, associates, and joint ventures. Two key indicators are:

1. Carrying amount exceeds net assets of the investee-If the carrying amount of the investment in the separate financial statements is higher than the investor’s share of the net assets of the investee (as per consolidated financial statements), including associated goodwill, this indicates possible impairment.

2. Dividend exceeds total comprehensive income-If the dividend declared by the subsidiary/associate/JV exceeds its total comprehensive income for that period, it may indicate that the investment cannot recover its carrying amount.

Other common indicators include:

• Persistent losses incurred by the investee
• Regulatory restrictions affecting the investee
• Adverse changes in market or economic environment
• Significant decline in performance of the investee
• Deterioration in cash flows or future outlook
• Plans for restructuring or closing down operations

When such indicators exist, the entity must estimate the recoverable amount of the investment and recognize an impairment loss if the recoverable amount is lower than the carrying value.

Accounting Treatment in Separate Financial Statements

Impairment loss on Investment Dr.

Provision on impairment in investment Cr.

• The impairment loss is charged to the Statement of Profit and Lossin the standalone financial statements.
• The carrying amount of the investment is reduced through a provision for impairment.

Disclosure Requirements (Only relating to impairment in Investment in Subsidiary / Associate / Joint Venture)

(a) Events and circumstances that led to the impairment or reversal.

(b) Carrying amount and the amount of impairment loss recognised or reversed.

(c) Name and nature of the individual asset.

(d) Recoverable amount of the asset and whether it is based on:

• Fair value less costs of disposal, or
• Value in use

(e) If recoverable amount = fair value less costs of disposal:

(i) Level of fair value hierarchy (Ind AS 113).

(ii) For Level 2 and Level 3 measurements:

• Valuation techniques used
• Any change in technique and reasons for the change

(iii) For Level 2 and Level 3 measurements:

• Key assumptions used
• Discount rate(s) used in current and previous measurements (if present value technique is used)

(f) If recoverable amount = value in use:

• Discount rate(s) used in current and previous estimates

(g) Where recognised in the financial statements (P&L line item and note reference).

Example Format

During the year ended 31 March 20XX, the Company recognized an impairment loss of ₹[amount] (Year 20XX-1: ₹[amount]) in respect of its investment in [Name of investee — nature (subsidiary/associate/JV)]. The impairment loss is included in [“Impairment of investment in associate” / “Other expenses”] in the Statement of Profit and Loss.

Events and circumstances leading to impairment:

[Describe — e.g., regulatory action on DD/MM/YYYY which curtailed the investee’s operations; sustained losses in the investee; significant decline in market valuation; cancellation of project; etc.]

Basis of measurement:

Recoverable amount was determined using [fair value less costs of disposal / value in use].

Key assumptions (if value in use):

• Discount rate: [x]%
• Forecast period: [n] years
• Revenue growth / margin assumptions: [brief description]
• Terminal growth rate: [x]%

Movement

Policy on reversal:

Any subsequent increase in recoverable amount will be recognized in profit or loss to the extent the reversal does not exceed the previously recognized impairment.

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